Business Lessons From China’s Sharing Economy

Business Lessons From China’s Sharing Economy

From Airbnb to Uber, the sharing economy is a concept that’s drawn love and ire in equal measure over the last few years. While regulators struggle to keep up with the pressures these new businesses put on old industry, other countries are racing ahead.

In the regulation-light economy of China, sharing has gone stratospheric, with everything from sleeping pods to basketballs available for a small fee. But is China a unique case, and to what extent do the results there reflect the future of Western economies?

 

Idea sharing

The ridesharing service Uber was forced to abandon its Chinese business last year, selling its remaining assets to a rival that had outmanoeuvred it at every turn. Despite entering the market extremely early as part of its rapid global rollout, the American company had failed to tailor itself to the unique demands of the market.

In a country where the government often gives homegrown businesses preferential treatment, some would point to a bias against foreign companies. This may well be true, in part. The Chinese market may be the most culturally unique on Earth, and it brings with it peculiar constraints and considerations. Take Apple’s persistent losses in the territory: while its brand is well regarded, the lack of copyright enforcement has led it to compete with knockoffs, as well as far cheaper and still feature rich Android alternatives.

Just as important however is that when you introduce an idea to China, it quickly takes on a life of its own. The country has an extraordinary ability to reverse engineer a concept, and alter it to suit the needs and mores of the Chinese public. As with many technologies and ideas, China took the concept of ridesharing and quickly adapted it for its own means, making improvements along the way. Now the sharing economy is its own ecosystem, with many predicting that it could soon account for 10% of China’s entire GDP.

 

WePay For Everything

A similar revolution has happened in parallel to the sharing economy: mobile payments. Again, from the emergence of contactless bank cards and Apple Pay in the West, China soon adopted the technology and pushed it to a far wider audience. By using scannable barcodes and integrating the feature into the country’s most popular social media app, mobile payments skipped the technology gap.

Mobile payments have been slow to expand elsewhere because not all phones have the fingerprint scanners required for Apple Pay, or competitors like Google Wallet. In China, however, the majority of day-to-day transactions now take place on mobile. Minimal overheads for businesses using WeChat Pay or Alipay (operated by state backed giants WeChat and Alibaba) mean that everything from street food to taxis has quickly switched to mobile payments, often refusing cash altogether.

This is the precise opposite of countries like Japan or Germany, where even credit and debit cards are rarely accepted, with cash the only alternative. This has facilitated a rapid rise in rentable goods and services in China, which naturally benefit from speedy transactions and location independence. This frees these businesses from surcharges and saves them time, making them more competitive. But it’s also encouraging more and more novel implementations of the technology to new business models.

 

Economic ties

The ride sharing niche, still contested by companies like Lyft in the West, has long since been exhausted. Now startups are battling it out over bike sharing schemes, with more than 30 in Beijing alone. Others have taken to offering everything from courtside basketballs (around a $10 deposit, then 15 cents an hour) to electric cars ($150 deposit with decreasing usage costs) to battery packs (a miniscule cost in the world’s largest market for smartphones and energy production).

This preponderance of sharing based businesses hasn’t happened by accident. With the country looking to shift from relying on manufacturing to services, the Chinese government sees the sharing economy as a unique opportunity. With investment reaching 49% of total GDP in recent decades, China has built up a massive amount of debt. Shifting the focus to generating revenue from both domestic and foreign consumers stands to improve growth and stabilise a wobbly economy.

As such, in July this year their head of economic planning outlined a new policy framework for the sharing economy, designed to reduce regulation and other barriers to innovation. The hope is that sharing businesses will constitute over 10% of national GDP as soon as 2020, and 20% by 2025. For context, the official revenue projections for 2017 are around $915 billion.

 

Into Uberdrive

So how likely is it that the rest of the world will follow China’s lead? Well, there are reasons why other countries have been slower on the uptake. A key point of contention is regulation: governments so far have been cautious about the arrival of services like Uber, if not openly hostile. The company has found itself fighting legal battles over whether it can be defined as a taxi service, and the status of its employees, who Uber and others consider to be contracted rather than employed.

However, this hasn’t stopped people from using the service, or stopped the company from expanding. While taxis are likely to remain relevant in smaller towns and cities, Uber is dominating the private transport landscape in most large cities. In London the average Uber fare is around half the fare for a black cab, and the service is seen as more convenient, with many cabs not able to accept card. Protests from cab drivers have led to concessions from the mayor, including mandatory English tests for Uber drivers. Yet Uber’s bottom line is as yet unaffected, with UK profits doubling in 2016.

With mobile phones always improving, the switch to mobile payment is surely only a matter of time, although it will take longer in some territories than others. The UK has been quick on the contactless card uptake, but slower on mobile wallets, largely due to Apple’s staggered global rollout. The USA has a higher proportion of mobile payments and is well used to ride sharing, but its large and varied population is an issue; technologies spread quickly in coastal cities, but take longer to embed in the heartlands.

 

World domination

However, there are also interesting theories on China’s sharing success that could see similar businesses take off elsewhere. One posits that once you get over the mobile payment barrier, sharing businesses naturally appeal to all generations: millennials like saving money to spend on ‘lifestyle experiences’, while older people remember the frugal and fragile times before the current boom.

A desire to save money combined with fewer young people owning their own cars and properties seems like the ideal ground to seed these ideas. WIth the possible exception of America, where ownership is an indelible part of the American dream, most countries aren’t too different to China in this regard.

The greater level of regulation on startups and sharing businesses is an issue, but it’s one that should only delay businesses, rather than killing them. Meanwhile countries like America, the UK, France and India have burgeoning startup scenes, with the technical know-how and consumer markets to make sharing driven businesses a success. And with Tencent and Alibaba pressing their claims outside of China, the race is on to innovate and establish businesses before China can export them.

The sharing economy has hit stumbling blocks with regulation, and the bumpy rollout of bike sharing to cities like Manchester, England, where a ‘tamper proof’ bike is seen as a flagrant challenge. But when the pieces all fall into place – mobile payments, familiarity with the sharing ethos, adaptation to local cultures – sharing businesses seem set to dominate on a global scale. The fuse is burning slowly, but it has been lit. Businesses only need to look to China to see the fireworks.

 

For further information on starting a sharing economy based business, expanding your business to China, or any other questions on global company incorporation, don’t hesitate to contact us.

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